By Tiernan Ray

Shares of networking firm Silver Spring Networks (SSNI) are down $1.16 cents, or 6%, at $18.0.5, after the maker of equipment for the electricity grid received initiation of coverage today by the underwriters of its March 13th IPO, with four of the seven analysts rating it the equivalent of a Buy.

The stock is still above its offer price of $17, but below the first-day close of

Stifel Nicolaus’s Jefferey Osborne is among the bulls, rating the stock Buy with a $22 price target, writing the company “has built a leading track record of winning mandates and deploying IP-based secure wireless networking equipment and solutions with utilities in the U.S. and abroad, with 15.8 million Silver Spring-enabled devices already deployed.”

The company’s metering technology has opportunities in multiple parts of the world, he writes:

Global Advanced Metering Infrastructure (AMI) deployments are still in relatively early stages with significant opportunities in the U.S., the E.U., Latin America, and Asia. While utilities typically start with AMI, Silver Spring’s expandable, open standards-based, and secure IP network can and is increasingly being used for other aspects such as distribution automation, demand response, and outage management – all applications that allow utilities to drive cost and capex savings and use software that SSNI is looking to monetize. As a testimony to the strength of Silver Spring’s platform, the company has been awarded contracts on over 22 million devices, has won approximately 31% of AMI communications mandates in the U.S. since 2002, and has won strong market presence in Australia, Hitachi partnership in Japan, and mandates in Brazil and Southeast Asia.

Osborne is modeling $355.7 million in revenue this year, and an 11-cent net profit per share, up from a reported $304.3 million and a 22-cent loss last year.

Likewise, Credit Suisse‘s Patrick Jobin starts the stock at Outperform with a $26 price target, writing that “Silver Spring’s model is attractive and
will provide above peer growth given the multiple levers: (1) new smart grid
awards, (2) proven platform upsell of new high-ROI offerings, and (3)
recurring services,” and that the U.S. is “already past the tipping point of adoption and Silver Spring is well positioned to benefit from continued awards.”

Silver Spring’s addressable market is 1.5 billion “endpoints,” he argues, and less than 8% of those have “advanced metering solutions,” he contends.

Jobin thinks the stock can enjoy multiple expansion:

We expect multiple expansion to occur as Silver Spring enters the next phase in our valuation methodology framework (Exhibit 7). We believe Silver Spring is in the midst of the Demonstrating Platform Strength phase. Over the next year, we expect Silver Spring will enter the Leveraging Full Platform phase which we expect will correspond with multiple expansion as the risk profile is lowered from less reliance on large projects (and a higher mix of recurring revenue) and proven operating leverage to deliver earnings growth.

Jobin is modeling $350 million in revenue this year and net loss of 6 cents.

Piper Jaffray’s Troy Jensen, on the other hand, starts the stock at Neutral, with a $19 price target, writing that the company “will likely capture a significant amount of this market growth” of 23% in the “smart grid technology” field expected “over the next three years.”

However, “We believe that lack of near term catalysts rules out the possibility of a significant multiple expansion, and see limited upside to current trading levels,” writes Jensen.

The $7 billion estimated size of the smart grid equipment market is attractive, but it’s also very speculative, writes Jensen:

We believe future growth will be driven by the continued adoption of this technology as utility companies aim to increase operational efficiency, improve grid reliability and manage peak power usage to better control costs for both themselves and the customer. Currently, there are no yearly forecasts or market share reports issued for the space, which makes long-term forecasting almost impossible.

We believe shares of Silver Spring Networks are fairly priced at current levels and believe lack of near term catalysts rules out the possibility for significant multiple expansion. SSNI currently trades at a 20x our estimated FY14 non-GAAP EPS. This compares to the peer group average P/E of 12.1x, which consists of other high tech growth stocks within our coverage universe and coinciding technology hardware sectors (storage and wireless). The significant premium that Silver Spring currently trades at leads us to believe that shares will likely remain range-bound over the next 12 months as we anticipate little upside to the current earnings estimates. On an EV/sales basis, Silver Spring trades at a modest discount to the peer group based on CY14 estimates.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.